EU's CBAM: Opportunity or Challenge for Vietnam? - Vietnam Industry & Trade Bulletin

The CBAM Mechanism: Opportunity or Challenge for Vietnamese Exports?

The EU’s Carbon Border Adjustment Mechanism (CBAM) is an environmental trade policy involving tariffs applied to imports from carbon-intensive producers.

This mechanism is regarded as both a barrier and an opportunity for Vietnamese export enterprises. To better understand this issue, Industry and Trade Newspaper conducted an interview with Mr. Ma Khai Hien, Director of the Research and Development Center for Energy Savings (Enerteam).

Mr. Ma Kai-Hien – Director of the Energy Saving Research and Development Center (Enerteam).

Reporter: Sir, how will CBAM impact Vietnamese enterprises?

Mr. Ma Khai Hien: To realize the “Net Zero” carbon emission target by 2050, the European Union (EU) and the US have issued and will apply CBAM to certain imported items; the US specifically applies it even to domestic producers.

Accordingly, on March 11, 2021, the European Parliament voted to pass CBAM, which will fully take effect from 2026. The EU decided to balance carbon prices between domestic and imported products through the implementation of the CBAM mechanism.

CBAM will apply carbon pricing to imports based on the greenhouse gas (GHG) emission intensity of the production process. Initially, the applicable subjects are goods from the following sectors: Electricity, iron and steel, fertilizer, aluminum, and cement.

By the end of 2025, the European Commission will evaluate how CBAM is functioning and may expand the scope to more products and services, including the value chain and potentially “indirect emissions.” Officially, CBAM takes effect from January 1, 2026.

When CBAM becomes fully operational in 2026, EU importers of these products will need to apply for permission from CBAM and purchase carbon certificates at prices corresponding to goods produced in the EU.

The value of the certificate is based on the weekly carbon emission credit price of the Emissions Trading System (ETS). The tax rate depends on the emission content in production as well as the carbon price difference between the EU’s ETS and the price in the manufacturing country.

Reporter: So, how will CBAM impact the export proportion and value of Vietnam’s iron, steel, and aluminum products to the EU in the coming time?

Mr. Ma Khai Hien: With the CBAM mechanism, products such as iron and steel, aluminum, fertilizer, and cement currently have only 3 years before CBAM officially applies (January 1, 2026) to transition production from “brown” to “green” or face a carbon tax under CBAM regulations when exporting to the EU.

From October 1, 2023, enterprises with products exported to the EU, including iron and steel, aluminum, cement, and fertilizer, must perform GHG inventory reporting and emission reduction.

This is an opportunity for enterprises to transform production technology and implement emission reduction solutions. However, it is also a major challenge, especially for the steel industry, which had nearly USD 8 billion in export turnover to the EU (in 2022).

Difficulties for Vietnamese steel enterprises in the roadmap to comply with CBAM include:

Awareness and capacity to perform GHG emission inventory assessments.
Technological barriers due to outdated and energy-inefficient equipment.
The emission reduction roadmap requires not only meeting technical and human resource requirements but also upgrading technical infrastructure, technology, and available resources for investment or accessing financial support—this is also a difficulty for other industries.

Certainly, CBAM will be one of the technical barriers for Vietnam’s industries exporting to the EU market in the near future. At that time, many enterprises will not be ready and will not meet the conditions, impacting the export proportion and value of sectors like iron, steel, and aluminum.

Reporter: In your opinion, what steps must the steel industry take to implement green production?

Mr. Ma Khai Hien: To adapt to export markets in the EU and US, Vietnamese enterprises are forced to change their methods and directions promptly to comply with new regulations of the host country and develop sustainably. There must be preparation and proactivity, such as:

Raising awareness and capacity in conducting GHG inventories.
Implementing reduction solutions using the enterprise’s available resources.

Additionally, enterprises need to proactively mobilize external support sources, including:

Technical support: In assessing, preparing emission reports, and building emission reduction roadmaps.
Technology: Accessing new technologies and applying Best Available Techniques (BAT) so that the steel industry has low energy consumption and emission levels.
Financial support: Accessing funds for upgrading technological lines and equipment, prioritizing energy efficiency and CO2 emission reduction criteria.

For Management Agencies: It is necessary to soon issue regulations, standards, and guidelines related to evaluating Energy Performance, energy saving and efficiency, and emission reduction. Authorities should accompany factories and industries in building a reasonable emission reduction roadmap. Furthermore, building favorable financial support mechanisms for enterprises to access upgrades for technological lines and equipment is essential.

Reporter: Thank you, Sir!